KUALA LUMPUR: Crude palm oil (CPO) production is expected to experience only a slight decline moving into 2027 despite the prevailing El Nino weather pattern, avoiding the severe production shortfalls anticipated in Indonesia.
Glenauk Economics managing director Julian McGill said a regional production shortfall is inevitable next year, but the overall market impact would be far less dramatic than widely feared.
Elaborating on the regional output breakdown, McGill projected Indonesia’s CPO output to drop by at least two million tonnes due to a prolonged and sharper drought across its southern, drought-prone key growing regions, such as South Sumatra and South Kalimantan.
In contrast, Malaysia’s oil palm estates have benefited from healthier precipitation patterns, blunting the overall severity of the dry spell.
“For oil palm, it’s not the El Nino itself that matters; it’s the impact of the El Nino on rainfall,” McGill said when presenting a paper titled Disruption and Realignment in Global Edible Oil Markets: Biofuels, Trade and the Outlook for 2027 at the Malaysian Palm Oil Forum Kuala Lumpur (MPOF KL) 2026 yesterday.
He pointed out that while Malaysia recorded a relatively dry August, strong rains returned in September, establishing a far more favourable moisture profile across local estates.
Interestingly, he noted that a slightly less heavy monsoon could actually work to the advantage of Malaysian growers.
Excessively heavy rains in South-East Asia typically hamper harvesting operations and create severe logistical bottlenecks when moving fresh fruit bunches from fields to mills.
As a result, a moderate drought scenario will lead to only a very slight dip in Malaysian CPO yields rather than a significant disruption.
Addressing broader market dynamics, McGill highlighted that global food demand for edible oils remained notably weak due to sustained high prices, though recent fund-driven price rallies have spurred opportunistic buying.
Major destination markets like China and India, he said, have actively imported CPO to bolster domestic inventories, with Chinese buyers funnelling volumes directly into exchange stocks despite sluggish immediate consumption.
However, the primary growth driver for edible oils has shifted decisively from traditional food consumption to the rapid expansion of biofuel mandates across South-East Asia.
Moreover, McGill highlighted that Indonesia’s massive biodiesel initiative, which absorbs roughly 30% of its CPO output, has overcome its historic funding hurdles.
Meanwhile, Thailand leads the region in price responsiveness, allocating roughly 44% of its CPO to biodiesel as it targets a B20 blend.
Malaysia currently utilises about one million tonnes of its 2.4 million-tonne installed biodiesel capacity, about 5% of CPO usage, though infrastructure and logistical bottlenecks continue to constrain a rapid upscale beyond B15.
In the immediate term, McGill noted that September output in Malaysia is projected to be robust against soft export volumes, which were temporarily squeezed by lower Indonesian export duties.
With Indonesia raising export duties this month, trade flows are expected to rebalance.
Plantation and Commodities Minister Datuk Seri Noraini Ahmad stated at the forum that Malaysia was on track to match or potentially exceed last year’s record output.
In 2025, national CPO production reached a historic 20.28 million tonnes, a 4.9% increase over 2024’s total of 19.34 million tonnes, generating US$28.1bil in export earnings.
“In the first seven months of 2026, Malaysia produced 10.8 million tonnes of CPO, slightly higher than the same period last year, while exports exceeded 9.1 million tonnes – an increase of about 10%,” Noraini said after officiating MPOF KL, adding that output entering the final months of 2026 remains firmly on target.
Taking a longer-term view, ISTA Mielke GmbH executive director Thomas Mielke warned of a structural slowdown in global palm oil production that will squeeze international export markets and create a bullish price environment.
Mielke forecast that world palm oil output growth will slow to an average of 1.3 million tonnes annually in the decade to 2030, less than half the 2.8 million-tonne annual average recorded over the preceding ten years.
“Palm oil still dominates the global market, but it no longer has to be priced at a discount to other oils and fats because of declining world exports,” Mielke stated.
He forecast CPO price to rise to RM5,000 a tonne in the first quarter of financial year 2027, driven by the impact of El Nino, the Indonesian push for its biodiesel B50 mandate and geopolitical factors.
Accounting for 31% of global oils and fats production and 49% of exports on just 6% of cultivated land, palm oil remains the market’s primary price driver.
Together, Indonesia and Malaysia command 46% of world exports.
Compounding structural challenges, including lagging replanting efforts, disease pressure, rising production costs, and strict sustainability constraints preventing land expansion, have kept yields below trend since 2019.
ISTA Mielke projects world palm oil production to fall by two million tonnes in 2026/2027, with Malaysia’s output tentatively forecast at 19.3 million tonnes next year.
Indonesia’s exports are expected to sink to an eight or nine-year low in 2027 as domestic consumption exceeds export volumes for the first time.
With total global exports of all 17 major oils and fats expected to decline in 2026 and 2027, Mielke said the contraction in Indonesian shipments will be difficult for consuming nations to offset, underpinning a structurally tight price outlook for the sector.
Malaysian Palm Oil Council (MPOC) chairman Datuk Carl Bek-Nielsen, in his speech, said MPOC’s market development strategy has increasingly focused on regions where long-term demand growth is strongest.
He announced that MPOC has moved its Sub-Saharan Africa regional office from Johannesburg to Nairobi, Kenya, and opened branch offices in Lagos, Nigeria, and Chennai, India.
“Even when the price works against you, relationships built patiently on the ground still carry real weight,” he said.
In the first eight months of 2026, Malaysian palm oil exports to Sub-Saharan Africa increased by 10%, the Middle East and North Africa by 23%, South Asia by 11%, and the Americas by 15%, compared with the same period in 2025.
These increases reflect continued growth across several key and emerging markets.
